The Bank of Russia kept the key rate for the sixth time in a row: what does it mean

The Board of Directors of the Central Bank of the Russian Federation decided to keep the key rate at 7.5%. At this level, the most important indicator for the Russian economy has been since September last year, and before that it had declined six times in a row. The main intrigue this time is focused around the signals about the further actions of the regulator. The market is waiting for at least a hint of how long the country will live with such stability of a key financial indicator. Why changes will happen soon and the regulator will definitely tighten its policy, experts told MK.

Roman Chechushkov, Head of Investment Analytics at Renaissance Bank:

“The fact that the key rate remained at the level of 7.5% was an absolutely expected decision for the market. Since the previous meeting, there have been no significant deviations in the inflationary picture, so there is no need to tighten the regulator’s policy.

Monthly dynamics demonstrates the acceleration of price growth. Inflation excluding fruits and vegetables, oil products and housing and communal services has been accelerating on average since the beginning of the year: +0.32% in April against +0.35% in March, +0.19% and +0.27% in February and January, respectively. Nevertheless, in the short term, on the eve of the seasonal reduction in the cost of fruits and vegetables, a slight acceleration of inflation did not affect the decision of the Central Bank of the Russian Federation.

For the economy, the rate of 7.5% is a balanced level for curbing inflation and economic growth. According to the forecasts of the regulator, the current level of the rate will allow the Central Bank of the Russian Federation to anchor inflation at 4% in 2024, and GDP growth will be 0.5-2%.

If the regulator gives a strong signal regarding future decisions on the rate at the next press conference of the head of the Central Bank Elvira Nabiullina, then it is likely that the ruble may react positively to this rhetoric over the next week and strengthen in the first days after the meeting.

Mikhail Zeltser, stock market expert at BCS World of Investments:

“The fall in inflation in previous months was caused by the effect of the “high base” of last year’s indicator, and by the beginning of the summer of 2023, the consumer price index fell to its lowest level since February 2020, to 2.3%. But according to our estimates, this, in fact, the technical effect has already been realized, and the price bottom, most likely, has been reached. That is, further acceleration of price growth is expected, and annual inflation may approach 6%. Thus, the Central Bank now has no arguments for easing monetary policy, so the key rate has remained at 7.5%.

On the other hand, we note a decrease in real spending by the population, adjusted for seasonality, and this is an argument in favor of maintaining a monetary pause. Thus, it is not surprising that the Central Bank of the Russian Federation at its June meeting delayed the tightening of its monetary policy. But the regulator will have a “key” ready at any moment to tighten the rate by +0.25% or even +0.5%. And the market should be ready for this.

In June, the rate was kept, but signals for a tightening of the CBR’s policy in the future almost rule out a decrease in rates on loans and deposits, and they should gradually go up, for example, on deposits towards 8% per annum, which is good for Russians who keep money in banks .

Be that as it may, price stability is important, which is why the Central Bank balances between fighting inflation and borrowing conditions for the private sector and corporations. That is why so far the rate has remained unchanged.”

Mikhail Vasilyev, chief analyst at Sovcombank:

“As long as the current inflation rate remains low – in April it was 2.3%, in May, judging by weekly data, it will be about 2.4% (the exact calculations of Rosstat will be published on the evening of June 9) – no increase in the key rate is required. It is quite expected that in this situation the Central Bank took a wait-and-see attitude and did not change the current parameters of its policy.

It should be remembered that in its decisions the regulator focuses not so much on inflation for the previous 12 months, but on its forecasts for it for the next year or two, because decisions on the key rate do not immediately affect credit conditions, the economy and inflation, but with a significant time lag. (from three to six quarters). Therefore, the decision taken by the regulator will affect inflation only at the end of 2023.

We believe that at the next meeting on July 21, the Bank of Russia will raise the key rate by 0.25% to 7.75%, and by the end of the year we expect the key rate to rise to 8.5%. The weakening of the ruble exchange rate since December, the revival of consumer demand and increased demand for loans, the shortage of personnel in the labor market (unemployment fell to a historic low of 3.3% in April), the increased budget deficit, which supports demand in the economy, will contribute to the acceleration of price growth. .

So far, the weakening of the ruble is not translated into an acceleration in price growth. According to our estimates, the dollar has grown against the ruble by 31% since December – from 61 to 82 rubles per unit of US currency – while non-food products, according to Rosstat, have risen in price by only 0.5% from December to April. So far, importers are slowly shifting increased costs into prices due to accumulated stocks of imported goods at the old strong ruble exchange rate and weak consumer demand. However, in the coming months, as stocks run out, the situation will change.

Probably, there will be a gradual increase in deposit and lending rates (within 0.5%) in the coming months on expectations of a projected rise in the key rate later this year. In our forecasts for this year, we set the average exchange rate of the ruble against the dollar at the level of 80 rubles, 89 rubles for the euro and 11.6 rubles for the yuan.”